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Congressional Budget Office Federal Health Care Spending: Why Is It Growing? What Could Be Done About It? Presentation to the University of Pennsylvania Wharton School Douglas W. Elmendorf Director November 13, 2013 The Challenge C O N G R

  1. Congressional Budget Office Federal Health Care Spending: Why Is It Growing? What Could Be Done About It? Presentation to the University of Pennsylvania Wharton School Douglas W. Elmendorf Director November 13, 2013

  2. The Challenge C O N G R E S S I O N A L B U D G E T O F F I C E

  3. Federal Spending for Health Care Programs Is Growing Much Faster Than Other Federal Spending and the Economy as a Whole Percentage of GDP Major health care programs are Medicare, Medicaid, the Children's Health Insurance Program, and subsidies offered through new health insurance exchanges and related spending. Data reflect recent revisions by the Bureau of Economic Analysis to estimates of gross domestic product (GDP) in past years and CBO’s extrapolation of those revisions to projected future GDP. C O N G R E S S I O N A L B U D G E T O F F I C E

  4. Federal Spending for Health Care Programs Has Grown Faster Than Federal Spending for Other Programs With Similar Beneficiaries Percentage of GDP Data reflect recent revisions by the Bureau of Economic Analysis to estimates of gross domestic product (GDP) in past years and CBO’s extrapolation of those revisions to projected future GDP. Medicare spending is net of offsetting receipts. C O N G R E S S I O N A L B U D G E T O F F I C E

  5. Those Projections Incorporate CBO’s Reaction to the Slowdown in Health Care Spending During the Past Several Years Revisions to CBO’s Projections of Medicare and Medicaid Spending Between March 2010 and May 2013 Apart From Changes Due to Overall Economic Conditions and Legislation: Medicare a Medicaid b Technical Revisions Percent Technical Revisions Percent (Billions of dollars) Change (Billions of dollars) Change 2013 -45 -8% -17 -6% 2020 -137 -15% -85 -16% Total 2010-2020 -785 -11% -445 -11% a. Medicare spending is net of offsetting receipts. b. The comparison for the Medicaid baseline is to August 2010, as the March 2010 baseline did not include the effects of the Affordable Care Act (ACA). Only minor changes were made in that August baseline beyond those related to the ACA. C O N G R E S S I O N A L B U D G E T O F F I C E

  6. Federal Spending for Major Health Care Programs Will Increase Relative to GDP for Three Main Reasons Percentage of Projected Growth in Federal Spending for Major Health Care Programs Through: 2023 2038 Population Aging 21 35 Expansion of Federal Subsidies for Health Insurance Through Medicaid and Exchanges 53 26 Rising Costs of Health Care Per Person (“Excess Cost Growth”) 40 26 Major health care programs are Medicare, Medicaid, the Children's Health Insurance Program, and subsidies offered through new health insurance exchanges and related spending. C O N G R E S S I O N A L B U D G E T O F F I C E

  7. Even After the Affordable Care Act Is Fully Implemented, Most Federal Dollars for Health Care Will Support Care for Older People CBO’s projections for 2023: — Net federal spending for Medicare: $903 billion — Federal spending for Medicaid and CHIP: $578 billion — Federal spending for exchange subsidies and related items: $134 billion Of all federal spending for the major health care programs projected for 2023: — Three-fifths will finance care for people over age 65; — One-fifth will finance care for the blind and disabled; and — One-fifth will finance care for able-bodied nonelderly people. C O N G R E S S I O N A L B U D G E T O F F I C E

  8. Payroll Taxes and Premiums Cover Only Part of the Overall Costs of Medicare a. Premium payments for beneficiaries and amounts paid by states from savings on Medicaid’s prescription drug costs. The extended baseline generally adheres closely to current law, following CBO’s 10 -year baseline budget projections through 2023 and then extending the baseline concept for the rest of the long-term projection period. The benefits shown in the right panel are net of premiums paid by beneficiaries. The amounts shown in that panel are present values, adjusted to remove the effects of inflation and discounted to the value for beneficiaries at age 65. For more information, see CBO’s The 2013 Long-Term Budget Outlook (November 2013). C O N G R E S S I O N A L B U D G E T O F F I C E

  9. Population Aging C O N G R E S S I O N A L B U D G E T O F F I C E

  10. The Share of the Population Age 65 or Older Is Rising Substantially For more information, see CBO’s The 2013 Long-Term Budget Outlook (November 2013). C O N G R E S S I O N A L B U D G E T O F F I C E

  11. What Could Be Done About Growth in Federal Health Care Spending Due to Population Aging? Nothing. Indeed, a central goal of policies regarding health and health care is to reduce disease, injury, and disability so that people are healthier and live longer. The more successful our policies are, the more population aging we will have. Hence, efforts to reduce federal health care spending need to be directed elsewhere. C O N G R E S S I O N A L B U D G E T O F F I C E

  12. Expansion of Federal Subsidies for Health Insurance A caveat: This material draws on CBO’s projections from May, with an update in July in response to regulatory changes. We have not updated our projections based on new information this fall. C O N G R E S S I O N A L B U D G E T O F F I C E

  13. We Estimate that ACA Coverage Provisions Will Have a Significant Effect on Some People but Little Effect on Most People: Part 1 CBO and JCT’s projections for 2023 for people under age 65 relative to prior law: — About 25 million more people will have health insurance, as the number of uninsured will fall from 56 million to 31 million. — Of those 31 million:  About 30% will be unauthorized immigrants and thereby ineligible for almost all Medicaid benefits and exchange subsidies;  About 20% will be eligible for Medicaid but choose not to enroll;  About 5% will not be eligible for Medicaid because their state chose not to expand coverage; and  About 45% will have access to insurance through an employer or could buy it through an exchange or directly from an insurer. JCT refers to the staff of the Joint Committee on Taxation. C O N G R E S S I O N A L B U D G E T O F F I C E

  14. We Estimate that ACA Coverage Provisions Will Have a Significant Effect on Some People but Little Effect on Most People: Part 2 CBO and JCT’s projections for 2023 for people under age 65 relative to prior law: — About 7 million fewer people will have employment-based health insurance. (That is the net decline: More people who would have had such insurance will not have it under the ACA, but others who would not have had such insurance will gain it under the ACA.) — About 10 to 15 million people who would have bought insurance in the nongroup market without the ACA will face higher premiums before subsidies, on average, primarily because insurance policies will be required to cover a much larger share of health care costs. Some but not all of those people will receive subsidies through the exchanges. — About 200 million other people who would have had employment- based health insurance or been covered by Medicaid without the ACA will have the same source of coverage and face similar costs for insurance (apart from any effects of the future excise tax on high- premium plans). C O N G R E S S I O N A L B U D G E T O F F I C E

  15. We Estimate that ACA Coverage Provisions Will Have a Significant Federal Cost That Will Be More Than Offset by ACA Spending Cuts and Revenue Increase s Projected federal cost of the ACA coverage provisions from 2014 to 2023 $1.4 trillion Projected impact on the deficit of the direct spending and revenue effects of all of the provisions of the ACA from 2013 to 2022* -$109 billion Projected impact on the deficit of those effects during the following decade — including “policies that might be difficult to sustain over a long period” -½ percent of GDP * Based on CBO and JCT’s July 2012 estimate of repeal, which is our most recent estimate for the overall legislation. C O N G R E S S I O N A L B U D G E T O F F I C E

  16. For Any Given Year, Our Estimate of the Cost of ACA Coverage Provisions Has Not Changed Much Since March 2010 C O N G R E S S I O N A L B U D G E T O F F I C E

  17. What Could Be Done About Growth in Federal Health Care Spending Due to An Expansion of Federal Subsidies? Lawmakers could roll back all or part of the expansion under the Affordable Care Act, or they could narrow the group of people eligible for other federal subsidies for health insurance or reduce the size of those subsidies. Such changes would reduce federal spending but would also leave the affected people to bear higher costs, to lose health insurance in some cases, and to receive less health care in some cases. CBO analyzed several possible approaches of this sort in Options for Reducing the Deficit: 2014 to 2023 . For more information, see CBO’s Options for Reducing the Deficit: 2014 to 2023 (November 2013). C O N G R E S S I O N A L B U D G E T O F F I C E

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